Explainer
Vendor managed inventory
Under vendor managed inventory the supplier, not the retailer, decides what to ship and when, based on shared sales and stock data. It trades control for accuracy, and it moves risk in a direction that is easy to underestimate.
By The Retail Ledger · September 27, 2026
What it solves
The retailer's replenishment system knows what sold. The supplier knows what is in production, what is constrained and what substitutes. VMI puts the decision with the party that has the second set of facts, which usually improves in-stock rates and reduces the bullwhip effect of lumpy orders.
It works best in stable, replenishable categories with clean data: basics rather than fashion, as in allocation and replenishment.
What it moves
Forecast risk shifts toward the supplier, and so, in many arrangements, does inventory carrying cost, since goods may sit at the retailer on consignment terms. A supplier that agrees to VMI without agreeing how obsolescence is handled has taken a demand risk it does not control, because the retailer still controls price, promotion and shelf space.
The ownership question is the one to settle first, and it is the distinction set out in consignment versus firm sale.
Making it work
Agree the data feed and its latency, the service level target, who pays for obsolescence, and how the arrangement ends. The last one matters: unwinding VMI mid-season leaves someone holding stock positioned for a replenishment model that has stopped.
Questions
What is vendor managed inventory?
An arrangement in which the supplier decides replenishment quantities and timing using the retailer’s sales and stock data.
Who owns the inventory under VMI?
It depends on the agreement. It can be sold to the retailer on delivery or held on consignment, and that choice determines who carries the risk.
Where does VMI work best?
In stable replenishable categories with reliable data, rather than in seasonal fashion.
Related: EDI and ASNs.